Legal & General plans rival product to compete with new pension superfunds

By Carolyn Cohn
LONDON, Aug 23 (Reuters) - UK insurer Legal & General
aims to take on incoming pension superfunds with a
similar product of its own to bolster corporate retirement
schemes, a company executive told Reuters.
Legal & General is already talking to employers and
regulators about the product, which would be suitable for
schemes that may not be able to afford a so-called bulk annuity
- insurance that pensions will be paid in full - Laura Mason,
CEO of Legal & General retirement institutional, said.
"We are working with a couple of (employer) sponsors," she
said, adding that the product could be used by pension schemes
with a "medium" level of funding. Mason did not give a time
scale for the launch of the product.
Pension superfunds are a new pension investment model due to
come on the market next year in Britain. They consolidate
collective assets from various pension schemes, aiming to
benefit from economies of scale and manage the money more
efficiently.
Mason said L&G's product would be similar to a pensions
superfund, but would not involve a total split of the pension
scheme from its employer sponsor.
L&G is one of the biggest players in the bulk annuity
market, which involves insuring company defined benefit, or
final salary, pension schemes. Bulk annuity sales boosted L&G's
first-half operating profit, after the company agreed Britain's
largest ever bulk annuity in June, a 4.6 billion pound ($5.6
billion)deal with the Rolls Royce UK pension scheme.
The market is growing as companies seek to address huge
deficits in Britain's 2 trillion pound final salary pension
sector. Consultants predict up to 40 billion pounds in bulk
annuity deals this year.
But critics say they are expensive, particularly for those
schemes which are in deficit. For this reason, most pension
funds which take out a bulk annuity are already well-funded.
The pension funding problem is Europe-wide, as people live
longer and as years of central bank stimulus has depressed
interest rates, leading to gaps between the fixed sums the
pension schemes pay out and their investment income.
Britain's pensions industry has come up with the pension
superfund model, which focuses on schemes which are not so
well-funded, but differences over how to regulate the superfunds
have delayed the first deals until next year.
New firms Clara Pensions and The Pension Superfund have said
they have deals in the pipeline.
While The Pensions Regulator is expected to regulate the
superfunds, L&G's product will be regulated by Britain's
insurance regulator, the Prudential Regulation Authority, Mason
said.
Some insurers see the superfunds as competition to the
traditional bulk annuity market, while offering less protection
to pensioners than a bulk annuity. But Mason said there was room
for different types of company pension products.
"It's a massive market," she said, adding that the newer
products would "give the underlying scheme members better
security compared with where they are today".
($1 = 0.8165 pounds)
(Reporting by Carolyn Cohn; Editing by Susan Fenton)
2019-08-23 13:29:33

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